Statement by Walker, J.:

This action was brought to recover the sum of $10,144.50, as due upon four several notes indorsed in blank by the defendant. The case was referred to Honorable Howard A. Foushee, who made his report, in which, after finding the facts and stating his conclusions of law therefrom, he recommended that judgment be rendered in favor of the plaintiffs, and against the defendants, for $10,144.50, the amount due on the notes, with interest on $7,144.50 from 20 March, 1911, and on $3,000 from 8 April, 1911, until paid, together with the costs of the action; and further recommended that no execution be issued on said judgment until 1 May, 1915, and that the three F. A. Moore notes, and the assignment from him securing the same, and the Louis Moore note with the assignment securing the same, should all be delivered by the said trustee to the clerk of the superior court of Durham county, state of North Carolina, to be held by him until such time as said R. O. Everett pays said judgment, at which time the same shall be delivered to him. Defendant excepted to the conclusions of law of the referee.

The material facts are as follows: On 20 March, 1911, F. A. Moore executed and delivered to the defendant, R. O. Everett, three demand notes aggregating $7,144.50, and the same are set out in the record. As stated, the notes were payable on demand, and were secured by an assignment of an interest of

F. A. Moore in his share and portion of the estate of John Annin of New York city. This assignment, which was deposited with R. O. Everett as collateral for the payment of said notes, in addition to transferring and assigning an interest to secure said note, constituted and appointed the defendant, R. O. Everett, or any person whom he might substitute, as his lawful attorney to collect said interest in said estate and apply the same to the discharge of said indebtedness.

On 8 April, 1911, Louis Moore executed and delivered to R. 0. Everett and G. C. Farthing his promissory note for $3,000, payable on 1 September, 1911, and, to secure said indebtedness,_transferred and assigned to R. O. Everett an interest in the estate of John Annin, and appointed R. O. Everett, or any person whom he might substitute, as attorney to collect the same and discharge said indebted

ness.

their interest in the Annin estate, R. O. Everett would be ultimately responsible for the payment of said notes; but he would not be called upon to pay the same until the estate of John Annin had been exhausted. G. C. Farthing held the notes so indorsed to him from 11 April, 1911, until 23 August, 1912, when the said Farthing executed and delivered to R. H. Sykes and W. P. Clements, trustees, a deed of trust conveying his property to them, and, among other things, all the right, title, and interest of G. C. Farthing in and to the abovedescribed notes and collateral assignments, and on said date the trustees took possession of said papers and retained them until the commencement of this action. Said trustees of G. C. Farthing made demand upon F. A. Moore and Louis Moore, but they failed to pay said notes, and the estate of John Annin has not been wound up. Demand was then made by the plaintiffs, Sykes and Clements, trustees, upon R. O. Everett for payment, and he declined to pay, upon the ground that he was not liable until the Annin estate had been exhausted. The referee made the following findings of fact, among others:

7. That at the time said three F. A. Moore notes were indorsed to G. C. Farthing, to wit, 11 April, 1911, it was done upon an agreement between R. O. Everett and G. C. Farthing that he would be ultimately responsible for the payment of said notes, but that he (Everett) would not pay the same until the estate of John Annin had been exhausted. In the event there was any trouble about the collection of said notes, that he (Everett) would procure and pay for the services of an attorney, and that he (Everett) would hold Farthing harmless against the cost and expenses of any litigation incident to the collection of said notes. That Farthing did not know anything about the Annin estate, and that Everett told Farthing he had been to New York and he expected the same to be closed up in

sixty or ninety days, and that the notes were perfectly good. That Farthing relied upon the representations of R. O. Everett, and took over said notes without investigation.

9. That at the time said Louis Moore note was transferred to G. C. Farthing, as aforesaid, to wit, 16 April, 1911, it was agreed between Farthing and Everett that he (Everett) would be ultimately responsible for the full face value of said note, but that Farthing should not call on him to pay the same until the collateral was exhausted, and that if any attorney was needed to collect the Louis Moore note, that he (Everett) would pay the expenses of same, and Farthing should be held harmless by reason of any litigation concerning the

same.

10. That said estate of John Annin has not been wound up; that R. O. Everett has employed counsel, and has made repeated trips to New York to see said attorneys, and to expedite the winding up of said estate of John Annin; but so far the end is not in sight, and no one knows when the suits incident to the winding up of said estate will be ended.

The exceptions coming on to be heard before Judge C. C. Lyon, the following judgment was entered thereon:

"This cause coming on now to be heard upon the report of Honorable H. A. Foushee, referee, and the exception filed thereto by the defendant, after hearing argument of counsel, it is ordered, considered, and adjudged that the report of the referee be and the same is hereby in all respects confirmed, and it is further ordered, considered, and adjudged, in accordance with said report, that the plaintiffs, R. H. Sykes and W. P. Clements, trustees of G. C. Farthing, as such trustees, recover of the defendant, R. O. Everett, the sum of $10,144.50, with interest on $7,144.50 from 20 March, 1911, until paid, and with interest on $3,000 from 8 April,

4 A.L.R.-48.

1911, until paid, together with the cost of this action to be taxed by the clerk of this court; and in accordance with said report, that no execution issue on this judgment until 1 May, 1915. It is further adjudged that the three F. A. Moore notes, as set out and described in the report of said referee, together with the assignment securing the same and the Louis Moore note, as set out and described in the report of said referee, together with the assignment securing the same, should all be delivered by said trustees to the clerk of the superior court of Durham county, North Carolina, to be held by him until such time as the said R. O. Everett pays this judgment, at which time the said notes and assignments shall be delivered to the said R. O. Everett."

From this judgment defendant appealed to this court.

Messrs. Bryant & Brogden and Winston & Biggs, for appellant:

Plaintiffs, as trustees of G. C. Farthing, stand in his shoes and have no rights superior to the rights which he had as the holder of said paper.

3 Am. & Eng. Enc. Law, 2d ed. 46; 23 Am. & Eng. Enc. Law, 2d ed. 492; 4 Cyc. 218, 219; Wallace v. Cohen, 111 N. C. 106, 15 S. E. 892; Southerland v. Fremont, 107 N. C. 565, 22 Am. St. Rep. 900, 12 S. E. 237; Causey v. Snow, 122 N. C. 326, 29 S. E. 359; Battery Park Bank v. Loughran, 126 N. C. 814, 36 S. E. 281; Taylor v. Lauer, 127 N. C. 157, 37 S. E. 197; Brooks v. Sullivan, 129 N. C. 190, 39 S. E. 822; Davidson v. Powell, 114 N. C. 575, 19 S. E. 601; Mendenhall v. Davis, 72 N. C. 150; First Nat. Bank v. Pegram, 118 N. C. 674, 24 S. E. 487; Lockhart v. Ballard, 113 N. C. 292, 18 S. E. 341; Bresee v. Crumpton, 121 N. C. 122, 28 S. E. 351. Parol evidence is admissible to explain a blank indorsement as between the first indorser and first indorsee.

Hill v. Shields, 81 N. C. 254, 31 Am. Rep. 499; Davis v. Morgan, 64 N. C. 570; Mendenhall v. Davis, 72 N. C. 150; Evans v. Freeman, 142 N. C. 67, 54 S. E. 847; Iredell County v. Wasson, 82 N. C. 309; First Nat. Bank v. Pegram, 118 N. C. 671, 24 S. E. 487; Adrian v. McCaskill, 103 N. C. 186, 3 L.R.A.759, 14 Am. St. Rep. 788, 9 S. E.

284; Cobb v. Clegg, 137 N. C. 153, 49 S. E. 80; Smith Premier Typewriter Co. v. Rowan Hardware Co. 143 N. C. 97, 55 S. E. 417; Woodson v. Beck, 151 E. 751; Baxter Nat. Bank v. Talbot, N. C. 148, 31 L.R.A. (N.S.) 235, 65 S.

154 Mass. 217, 13 L.R.A. 52, 28 N. E. 163; Fullerton v. Hill, 48 Kan. 558, 18 L.R.A. 36, 29 Pac. 583; Johnston v. Schnabaum, 86 Ark. 82, 17 L.R.A. (N.S.) 838, 126 Am. St. Rep. 1082, 109 S. W. 1163, 15 Ann. Cas. 876; 2 Parsons, Bills & Notes, § 520; Pike v. Street, 1 Moody & M. 226; Riley v. Gerrish, 9 Cush. 104; Hays v. May, Wright (Ohio) 80; Houck v. Graham, 106 Ind. 198, 55 Am. Rep. 727, 6 N. E. 594; Drummond v. Yager, 10 Ill. App. 382; First Nat. Bank v. Crabtree, 86 Iowa, 731, 52 N. W. 559; Forepaugh v. Delaware, L. & W. R. Co. 128 Pa. 217, 5 L.R.A. 508, 15 Am. St. Rep. 672, 18 Atl. 247; Roads v. Webb, 91 Me. 414, 64 503; Tankersley v. Graham, 8 Ala. Am. St. Rep. 246, 40 Atl. 128; Taylor v. French, 2 Lea, 257, 31 Am. Rep. 609; Goodrich v. Stanton, 71 Conn. 419, 42 Atl. 74; Hirsch v. Kaufman, R. I. 81 Atl. 66; Chapeze v. Young, 87 Ky. 480, 9 S. W. 399; True v. Bullard, 45 Neb. 412, 63 N. W. 824; Doll v. Getzschmann, Ann. Cas. 1913A, 882, and note, 90 Neb. 370, 133 N. W. 417; 2 Randolph, Com. Paper, § 778.

Mr. P. C. Graham, for appellees: The conclusions of law by the referee were correct, and the judge was not in error in affirming the same and in signing the judgment as set out in the record.

Jones, Collateral Securities, §§ 589, 590, 685, 720; Barnard v. Martin, 112 N. C. 754, 17 S. E. 536; Hinsdale v. Jerman, 115 N. C. 152, 20 S. E. 294; Silvey v. Axley, 118 N. C. 959, 23 S. E. 933; 7 Cyc. 879, 889, 900; First Nat. Bank v. Lineberger, 83 N. C. 455, 35 Am. Rep. 582; Carter v. Duncan, 84 N. C. 676.

Walker, J., delivered the opinion of the court:

The larger part of the argument before us was taken up with a full discussion of the question whether a blank indorsement by the payee, or one of the payees, to a third party, can be explained by oral evidence showing what the special contract between them was, and that it was different from the one implied by law from the mere indorsement of the paper. This is a question of

Bills and notesindorsement

effect.

But waiving, for the present, this view of the record, and considering the other question argued, we are of the opinion that by our decisions, although there is some conflict in other states, the evidence is competent. In Mendenhall v. Davis, 72 N. C. 150, this court, after stating that when a payee or regular indorsee thereof writes his name on the back of a note, as between him and a bona fide holder for value and without notice, the law implies that he intended to assume the well-known liability of an indorser, and he will not be permitted to contradict this implication; "but this rule does not apply between the original parties to a contract which is not in writing, although there may be the signature of one or more parties to authenticate that some contract was made. In such cases, it must always be a question of fact what contract the signature authorizes to be written above it; in other words, what was the agreement of the parties at the time it was written. There is no written contract to be altered; the

parol-to ex

whole (except the signature, which by itself does not make a contract) exists in parol, and must be established by such proof." The court then proceeds to Evidencesay that the pre- plain endorsesumption that one ment. who indorses a note after its delivery by the maker is a guarantor (under the law as it then existed) is not one of law, but one of fact only, and may be rebutted; so that it does not affect injuriously the right of a subsequent bona fide holder. Several cases are cited to support the position, in which the rule was applied. Love v. Wall, 8 N. C. (1 Hawks) 313; Gonez v. Lazarus, 16 N. C. (1 Dev. Eq.) 205; Davis v. Morgan, 64 N. C. 570, and Sylvester v. Downer, 20 Vt. 355, 49 Am. Dec. 786, where Judge Redfield said that in the particular case there was a legal implication "that the indorser was a joint promisor, but the signature being blank, he may undoubtedly show that he was not understood to assume any such obligation;" and to the same effect are these cases: Clapp v. Rice, 13 Gray, 403, 74 Am. Dec. 639; Perkins v. Catlin, 11 Conn. 213, 29 Am. Dec. 282; 2 Parsons, Bills & Notes, p. 121, and notes (1871 ed. p. 517), where numerous like cases will be found. This doctrine is so firmly established by a long series of decisions in this state that it is far too late now to question it, as will presently appear. In the more recent case of Hill v. Shields, 81 N. C. 250, 31 Am. Rep. 499, Justice Dillard, who was always careful and accurate in the statement of legal principles, said: "The indorsement being in blank, and the contract implied by law with his indorsee and subsequent holder, giving such unqualified power [to dispose of the same] as we have seen, it has been much debated and variously decided as to the competency of the indorser, by parol proof, to rebut the implication of the law, and to annex a qualification when none is expressed. It is settled in this state, however, that parol testi

mony may be adduced under a blank indorsement to annex a qualification or special contract as between the immediate parties. Davis v. Morgan, 64 N. C. 570; Mendenhall v. Davis, supra. But between indorser in blank and remote parties without notice the weight of authority is that parol proof is inadmissible, and the contract implied by law stands absolute. 2 Parsons, Bills & Notes, 23; Hill v. Ely, 5 Serg. & R. 363, 92 Am. Dec. 376; 1 Dan. Neg. Inst. §§ 699 and 719." The following cases recognized and applied the principle in a general way: Iredell County v. Wasson, 82 N. C. 309; Adrian v. McCaskill, 103 N. C. 183, 3 L.R.A. 759, 14 Am. St. Rep. 788, 9 S. E. 284; Smith Premier Typewriter Co. v. Rowan Hardware Co. 143 N. C. 97, 55 S. E. 417; Woodson v. Beck, 151 N. C. 148, 31 L.R.A. (N.S.) 235, 65 S. E. 751.

Two cases, which are apparently relied on by appellee, should be noticed. Davidson v. Powell, 114 N. C. 575, 19 S. E. 601, is one; but a close reading of that case will show that it is a clear authority in support of our view, as Justice MacRae, in the opinion written by him for the court, says: "In the hands of the original payee an indorsement may be shown to be upon certain conditions; but a bona fide holder for value, before maturity and without notice, is not affected by any equities existing between the original parties. The same rule will apply between the last payee and all subsequent indorsers."

The other case is First Nat. Bank v. Pegram, 118 N. C. 671, 24 S. E. 487. This is a still stronger case, as there it was proposed to show by

parol evidence that the cashier of the plaintiff bank had informed the indorsee that the maker had sufficient funds in the bank to pay the note, and that he would not be held responsible upon it, his signature on the back of the note being a mere form. The first syllabus of the case is this: "Parol testimony may be adduced under a blank indorsement to annex a qualification or special

contract as between immediate parties; but between an indorser in blank and remote parties without notice such parol proof is inadmissible, and the contract implied by law stands absolute." The court cites and approves Hill v. Shields, Davidson v. Powell, and Mendenhall v. Davis, supra; and, admitting a conflict in the decisions of other courts, it states that here the matter has been settled and closed by numerous decisions. It then cites Bruce v. Wright, 3 Hun, 548, and refers to it in the following language: "It was held that in an action against any indorser by his immediate indorsee it is a good defense that there was a verbal agreement at the time of the indorsement that the indorsee should not sue the indorser, and that the contract between the two consists partly in the written indorsement, partly in the delivery of the bill to the indorsee, and partly in the actual understanding and intention with which the delivery was made, and that the intention of the parties may be gathered from the words of the parties, either spoken or written?"

In commenting upon the very instructive case of Baxter Nat. Bank v. Talbot, 13 L.R.A. p. 52, the learned annotator says: "While it is elementary law that parol evidence is incompetent to vary the terms of a written instrument, still it is equally well settled that, as between the original parties to commercial paper, such proof is admissible as will have a tendency to establish the character in which an indorser intended that he should be bound; and proof of this intention will countervail the prima facie presumptions which the law indulges with reference to the paper," citing Riley v. Gerrish, 9 Cush.. 104; Sylvester v. Downer, 20 Vt. 355, 49 Am. Dec. 786; Owings v. Baker, 54 Md. 82, 39 Am. Rep. 353; Nurre v. Chittenden, 56 Ind. 465; Pierse v. Irvine, 1 Minn. 369, Gil. 272; Strong v. Riker, 16 Vt. 555; Quin v. Sterne, 26 Ga. 224, 71 Am. Dec. 204; Good v. Martin, 95 U. S..